2012 Preview: SandRidge Mississippian Trust I

With 2011 almost in the rearview mirror, many investors start to mull over their portfolios and ask what comes next. It's a fair question, and the answers we find are really the crux of great investing. The ability to identify value before the market has already baked expectations into the stock price is what distinguishes the successful investor.

With that, let's take a look at SandRidge Mississippian Trust I (NYSE: SDT  ) . This investment vehicle comes from Oklahoma-based SandRidge Energy (NYSE: SD  ) and focuses on the exploration and production of domestic oil and natural gas in the Mississippi Lime region of Kansas and Oklahoma. The economics of this region are pretty compelling, and taken with the current U.S. energy boom, investors are interested.

Stats for the trust

Year-to-Date Stock Return 21.15%
Target Distribution/Unit Through November $1.68
Actual Distribution/Unit Through November $1.89
Current Price $29.33
52-Week High $30.99
52-Week Low $18.76
CAPS Rating (out of 5) *****

Sources: Yahoo! Finance and company statements.

A look backward
This was the first year of existence for this SandRidge trust. It had its IPO in April, and investors were able to buy into an investment vehicle that reaps 90% of the royalties from 37 SandRidge Energy wells, and 50% of the royalties from 123 other wells, to be drilled by its parent company by Dec. 31, 2014.

An eye on the future
Parent company SandRidge recently inked a joint-venture deal with Repsol in the Mississippi Lime, an important provision of which excluded all wells and acreage associated with the trust.

Here's a peek at the expected shareholder payout schedule for next year …

2012 Quarter

Target Distribution

First $0.65
Second $0.70
Third $0.74
Fourth $0.73
Total $2.82

Source: company filings.

… and the trust's expected production stats for the first quarter of 2012.

Sales Volumes

December 2011

March 2012

Oil (MBbl) 146 149
Natural gas (MMcf) 910 921
Total (MBoe) 298 302

Source: company filings.

Keep in mind that when companies combine oil production numbers with natural gas production numbers, the new unit, MBoe, represents thousands of barrels of oil equivalent, a combination of thousands of barrels of oil (MBbl) and millions of cubic feet of natural gas (MMcf).

Another important consideration for the trust going forward is that 54% of expected production, and 60% of the expected revenues that generate the distribution payments, will be hedged until Dec. 31, 2015. Given the state of natural gas prices right now, this is a nice safety net for investors.

Bottom line
Year to date, the trust has outperformed SandRidge's expectations and distributed higher payouts to shareholders than its initial targets suggested. Unless its parent company has major production issues in 2012, expect the trust to be as successful in the new year.

SandRidge Mississippian Trust is just another example of how investors can profit from dividends and unit payments. If you like SandRidge for your portfolio, consider checking out 11 more ideas with the Fool's special free report "Secure Your Future With 11 Rock-Solid Dividend Stocks."

Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy.

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Read/Post Comments (2) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 30, 2011, at 3:52 PM, 912mot wrote:

    This has been a wonderful trust for me, I believe the stock Sdndridge will shine in 2012, I own both .

  • Report this Comment On January 08, 2012, at 10:30 PM, rockythesquirell wrote:

    Would it be best to reinvest the dividends or to take the cash on this one ?

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